NEW DELHI, May 11 (Reuters) - The Indian governmentannounced an inquiry on Friday into the country's main drugregulator, three days after a parliamentary report exposeddysfunction within the agency and alleged serious irregularitiesin how drugs are approved.

The parliamentary report alleged collusion between officialsof the Central Drugs Standard Control Organisation (CDSCO),which oversees the licensing, marketing and trials of new drugsin India, and pharmaceutical firms. It also said the agency waschronically understaffed and lacked both expertise and high-techlaboratories to fulfill its growing responsibilities.

The government said in a statement it appointed threeexperts to look at the scientific basis for approving new drugswithout clinical trials and to recommend ways of overhauling theapproval procedures. The experts have been given two months toreport back to the government with their findings.

The parliamentary report has added fuel to concerns over laxsupervision of the global pharmaceutical industry in emergingmarkets, where Western drug manufacturers are increasinglyfocusing their sales effort.

In a sign that the panel may have been hastily set up, oneof the three experts, Dr P.N. Tandon, president of the NationalBrain Research Centre, first learned about his appointment whenReuters contacted him for comment. "What committee are youtalking about? I have no idea. Could you possibly brief me aboutit?" he asked.

GOVT NOT PROBING DRUGS ON SALE

The government statement made no mention of any effort toensure that all drugs now on sale had been properly tested, oneof the major concerns of the parliamentary committee, whichspent 18 months investigating the CDSCO.

In a single 10-year period, between 2001 and 2010, the CDSCOapproved 2,167 drugs, the parliamentary committee was told.

Foreign and Indian companies named in the 78-pageparliamentary report denied any wrongdoing, saying they hadfully complied with Indian laws.

The chairman of the parliamentary committee, Brajesh Pathak,stood by the findings of their investigation. "We went through12,000 documents to figure out which were the drugs for whichproper licensing procedures were not followed," he told Reutersat his parliamentary office. "There are numerous entries made inthe register of the drugs controller that suggest that thingswere unusual."

The Indian investigation could prompt separate inquiriesinto multi-national drug firms by the U.S. Justice Departmentand the Securities and Exchange Commission, lawyers familiarwith such investigations told Reuters on Thursday.

A lobby group for foreign drug companies in India, theOrganisation of Pharmaceutical Producers of India (OPPI), saidit hoped the government inquiry would result in "effectiveremedial measures ... to stop (the) recurrence of such seriousallegations."

SPELLING MISTAKES

The parliamentary committee reviewed 39 randomly selecteddrugs approved by the CDSCO and found that in many cases drugshad not been tested properly and were often approved byunqualified CDSCO officials without expert medical opinion firstbeing sought.

The report also alleged collusion between pharmaceuticalcompanies and medical experts in drafting some of the lettersrecommending approval of the drugs. The letters were identicallyworded, to the point of containing the same spelling errors.

It said in the case of 11 of the drugs it reviewed,mandatory Phase III trials - the final stage of testing before adrug is approved - had not been conducted in India as required.

These trials were necessary because there was evidence thatsome ethnic groups reacted differently to certain drugs, thepanel said.

Health Ministry officials told the committee that therequirement for local testing could be waived in cases where thedrugs had already undergone multi-national clinical trialsinvolving different ethnic and racial groups.